Key Points
- Plug Power experiences a decline in stock value after missing consensus figures on revenue and profit.
- Unexpected events have led to a reduction in hydrogen production.
- High short interest could cause further market decline, but a rebound is anticipated.
- 5 stocks that are favored over Plug Power.
The main focus for Plug Power has always been to increase the production of green hydrogen to keep up with rising demand and transition from revenue growth to profitability. Even as the company continues to pursue this goal, it is facing challenges in crossing this critical threshold, raising doubts about its ability to do so.
Recently, the government provided $7 billion in grants to support the US hydrogen infrastructure and stocks. However, this event was not enough to offset the weaknesses in the company’s Q3 results. Plug Power remains committed to meeting its production and manufacturing targets, but its capitalization issues are expected to continue weighing on the market for the foreseeable future.
The outlook for green hydrogen is promising, and Plug Power is likely to navigate through its current challenges. The global hydrogen market was valued at $142 billion in 2022, with a 5% compound annual growth rate (CAGR), and green hydrogen accounted for only 3% of the market. Plug Power is expected to drive a 40% CAGR in green hydrogen production over the next decade, surpassing the market.
Given the demand for Nikola’s hydrogen fuel cell long-haul truck and other hybrid offerings, the growth in hydrogen demand could exceed current forecasts if sufficient hydrogen can be produced.
Plug Power Expanding Production and Margins
Despite the weakness in its revenue and profit figures, Plug Power had a strong quarter. Revenue grew by 5.4% to $198.71 million but fell short of the consensus estimate by 1000 basis points due to lower-than-expected fuel sales. Force Majeure events have disrupted fuel sales, leading to reduced deliveries, fewer service calls, and a slowdown in deployment.
Margins also suffered due to lower-than-expected fuel sales, causing the company’s losses to more than double. However, there are signs of improvement, and the company is working to increase production. It anticipates its Georgia facility to reach full capacity by the end of the year, and the Texas facility is on track to achieve full production by 2024. Facilities in Louisiana and New York are also making progress and are expected to significantly improve margins in the next four quarters. Manufacturing is gaining momentum, with electrolyzer sales tripling sequentially, growth in the liquefaction business, and power production on track to increase.
Plug Power’s Need for Cash and Capital Burn for Green Hydrogen
The primary takeaway from Plug Power’s Q3 report for investors is its need for additional capital. The company stated that it will require more capital and is exploring three options: corporate debt, government loans, and new partnerships. Each option has its own drawbacks, and additional debt will impact operations. Corporate debt, despite being the least restrictive, comes with the highest cost. Government loans from the Department of Energy are the cheapest but come with tight restrictions, while partnerships may dilute shareholder value but could be the best approach.
Analysts’ actions could influence the market’s next move. As of the first 12 hours following the release, there have been no new coverage or revisions from MarketBeat.com, providing the opportunity for them to impact the market. Until revisions are issued, the consensus sentiment is a Moderate Buy with a minimum price target of $7.50, nearly double the post-release price action.
Following the Q3 release, Plug Power’s stock fell by over 30% to a new low, attributed to the short interest exceeding 25% in the last report. However, this substantial decrease may indicate capitulation in an underperforming market, presenting a potential rebound. If this occurs, Plug Power is likely at its lowest point, but volatility will persist until there is clear evidence of progress in the hydrogen production and sales market.
While Plug Power currently has a “Hold” rating among analysts, top-rated analysts believe these five stocks are better buys.
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